A Case for Investment in Southeast Asia

Southeast Asia is considered to be one of the most promising innovation markets. However, this region has been developing in an interesting manner. It is not strongly influenced by the U.S. market, which is happening in the EU. At the same time, proximity to technologically developed centers (like Singapore) and capital sources in China create an interesting ecosystem for innovations. While some countries like Cambodia and Laos don’t have yet the necessary infrastructure for developing an IT startup industry, there are countries in Southeast Asia which are ready to take a leap to the next level of innovation. Among the mixture of cultures and different levels of economic development of Southeast Asia, Vietnam appears to be the most interesting spot for IT investors in the region. What makes it so lucrative?

Availability of talent

Vietnam is one of the few countries with its own search engine that successfully competes with Google in the local market. While this product was the result of international collaboration, it has some interesting implications for IT investors. Building a search engine is a complex process. It requires the availability of highly educated professionals and skilled project managers for organizing the development process and delivering the final product. Since Vietnam has already successfully implemented this project, it means that talented engineers are already available and talented employees are considered as one of the core assets of a successful startup.

Still room for growth

Source: vietnamconstruction.vn

While startup industry is booming in Vietnam, there is still not enough infrastructure and support from the Government which might be considered to be an obstacle to further development. However, at the same time it means that there is still considerable room for growth. There are signs that the government is actually interested in supporting startup infrastructure. For example, by establishing the Innovation Partnership Program, the government demonstrated that they understand the importance of innovations and support for the startup culture. Vietnam Silicon Valley is another government initiative, that was established under the supervision of the Ministry of Science and Technology. Its goal is to support the growth of Vietnam innovation companies. This demonstrates that the government is already working towards creating a more friendly environment for entrepreneurs and it is just a matter of time before we will see the results of this activity.

Compared to the more advanced Asian markets, like Singapore or Hong Kong, there are still many unoccupied niches in Vietnam, ranging from food tech to fintech. Since the population of Vietnam is seven times larger than Singapore and Hong Kong combined and the GPD has demonstrated steady growth for the last decade, there is considerable room for market development. The population of Vietnam is young, with a median age of 30, compared to 40 years of age in developed markets. This creates more opportunities for future economic growth, since most of the population is actively involved in the country’s economy. New generations of Vietnamese are also digital natives, which eliminates the barriers for the adoption of modern technologies, while it was an issue with older generations, who are used to a more traditional lifestyle.

View from the future

What will the Vietnam startup market look like in a decade? Will it be dominated by a few large local players or will the market structure be more heterogeneous? Will U.S. companies dominate the local market? It is not possible to see the future. However, it is possible to gain some insight by analyzing local conditions and the history of recent development in a startup environment.

The first barrier for foreign players is language. As shown by the success of the local search engine, providing quality service in the Vietnamese language is a challenging task, even for a large company like Google. While Google now dominates local search market, it’s still not clear whether other international players are willing to invest the same amount of resources into the localization of their products. This is especially critical for language-sensitive services like chatbots and voice assistants. As a result, local entrepreneurs will have an edge in the development of products which involve voice recognition and natural language processing. We can expect to see some Vietnamese version of Alexa introduced, as happened recently in Russia, where Yandex released the voice assistant Alice.

The fintech sector has historically been very dependent on local regulations. This creates another opportunity, since the Vietnamese government has created supportive conditions for startups in this niche. By establishing Fintech Steering Committee, it is clear that officials want to create conditions for the growth of new innovative financial services in the country.

The future of cryptocurrency startups in Vietnam is still unclear. The government’s attitude towards the crypto world is ambiguous. This creates risk for investment into local blockchain startups. The recent ban on the import of crypto miners was considered to be a negative sign for the industry. There are also plans to impose regulations on cryptocurrencies. This means that the government has plans to legalize the use of crypto assets in the country. However, if these regulations are too strict it will create an unfavorable environment for further development of the blockchain industry in Vietnam.

No dominant company has emerged in the sharing economy at the local level. The market is still dominated by well-established U.S. companies, like Grab and Airbnb. These companies have an effective approach for expansion into new markets and it’s unlikely that local startups will be able to compete with them.

Actions for investor

Investing in emerging markets requires spotting windows of opportunity that can be closed quickly. It is instructive to look back ten years at the situation existed in Thailand. During the last decade, there has been rapid development in infrastructure, information technologies and the financial system. Vietnam is likely to follow the same development pattern. As a result, the startup scene is now one of Vietnam’s most promising assets. What can a savvy investor do to keep an eye on emerging startup opportunities in Vietnam?

The first step is to focus on what is happening in the local startup scene. Setting up Google alerts for events related to Vietnamese startups may be a good start. The use of professional tools, like Crunchbase, will also increase your awareness of what’s happening on the market, knowing who is actively investing and what niches are trending.

Although we are living in a digital age, the most effective way to succeed in these types of investments is still to visit the place in person. This approach will help you to understand the country and its challenges and opportunities from your own experience. Networking at local startup events is another advantage of being there in person that isn’t possible to gain by researching the market from overseas.

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Dmitry Khramtsov is a specialist in information technology, graduated with an MSc in Computer Science from the University of Leicester, UK. Interested in exploring opportunities of modern technologies such as blockchain and virtual reality and their impact on a world global economy. Dmitry is also a research fellow and senior lecturer at Moscow Polytechnic University, where he works on solving complex computational fluid dynamics problems using high-performance computing.

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